Beginners Education: The Stock Box
The toughest part of analysing a company is sourcing the data. Essentially you have two options. You can painstakingly trawl through company reports and compile the numbers yourself, or you can pay a (sometimes very hefty) subscription to a company that will source and compile it for you. To make things easier for you we’ve created a research template that provides all the data in one table, designed to give you a summary of a company’s technical and fundamental qualities. The MARCUS TODAY STOCK BOX. We hope you like it.
Watch the video below for a brief explanation of the MARCUS TODAY STOCK BOX
You can get to the STOCK BOX section of the website by clicking on the STOCK BOX heading on the main menu (it may take a little time to load).
You can produce a STOCK BOX on any stock in the All Ordinaries by typing in the code in the grey box. The data used to produce the STOCK BOX will be updated every week, with the date of the last update shown in the top section. All data is sourced from Thomson Reuters.
A comment on forecasts – Many of you may think a lot of the software and websites you subscribe to make their own forecasts but they don’t. Truth is you will find almost every other service in this space uses the same basic data and forecasts – they may not declare it because they want to give you the impression they have a lot of genius analysts making judgements but very few apart from major brokers do and even then…they’re often tainted with corporate purpose! Some products have ‘analysts’ but their job is to collate the consensus forecasts not analyse companies. Some products do take the P&L and balance sheet consensus data and fiddle about with it a bit to make the earnings or NPAT numbers cleaner but the base forecasts are coming from the same place (Thomson Reuters or Bloomberg). Some use websites like Yahoo! or Google…but those websites get their numbers from Reuters or Bloomberg as well.
To guide you through the various section of the STOCK BOX, we’re using Telstra as an example:
There are 4 major sections in the STOCK BOX:
1. The top section is fairly self-explanatory. Fundamental information about the company, its size and Sector inclusion.
2. StarMine Ratings – This section features a ranking from 1-100 based on various StarMine models and rankings. StarMine is owned by Thomson Reuters and “rigorously analyes fundamental data and analyst activity to pinpoint potential concerns in the areas of earnings quality, company fundamentals, company valuation, and estimate revisions.” A brief explanation of the various StarMine models and their interpretation is included in the Glossary and all rankings are relative to other companies in Australia. Some factors, such as price momentum, are used in a number of the rating categories, including Value-Momentum, Price-Momentum and all three momentum trend indicators.
3. The third part of the STOCK BOX comes in a few pieces:
a) The first is a history of fundamentals combined with three or four years of forecasts. All forecasts are from Thomson Reuters:
Column Headers: One of the most confusing parts of this section is the year headers. We use FY-2, FY -1, FY0, FY1 etc instead of naming the years. FY0 means the last FY of actuals (in this case means FY2018/19 because this is last year of actuals until reporting season is over) and FY1 means the current FY estimates (in this case FY 2019/20) etc. The reason we use FY0, FY1, FY2 etc. is that some companies have June year ends, some have December year ends and others (such as the major banks ex-CBA) have September year ends. In October 2019 for example, “2019” would be a historical year (FY-1) for a financial year company since its year ended June 30 2019, while it would be the actual year (FY0) year for a calendar year company. The current format eliminates this problem.
ROE is Return on Equity: Generally we view an ROE above 20% as attractive and below 5% as poor, with a result in between being okay. But it depends a bit on the nature of the company. More importantly we are interested in the TREND IN ROE. A stock with a high ROE (such as BHP’s 27.9% in 2012) means nothing if it falls (to 10.4% in 2015). It is the TREND IN ROE that drives the share price, rather than the actual ROE.
EPS and EPS GROWTH is Earnings Per Share and its growth: We usually look for moderate to strong growth (above 10% is nice!) and more importantly we look for consistency. Big variations in growth forecasts suggests volatile price performance.
PE is Price Earnings Ratio: We look at PE not as necessarily being high or low but as being high or low compared to its own history. If a PE is high but has always been high because of industry or company fundamentals, there isn’t much to be gained from focusing on the level. We’re more interested if it is suddenly less expensive than it has been in the past and whether this represents a buying opportunity of if there is a reason for the re-rating. We use the VWAP price each year against earnings that year to calculate the historic PEs.
Yield: We look at size and quality (stability and sustainability) of yield, as well as the payout ratio (sustainability) when looking at potential inclusion in the MT Income Portfolio.
b) The right-hand part – This box provides you with some historic averages. The ROE average is for the last four years. It also includes the ROA (Return on Assets) and the NTA (Net Tangible Assets) and the highest and lowest PEs in the last four years along with the average PE over the last 4 years. We also show how much debt and cash the company has and what the gearing level is.
c) Broker recommendations – Showing how many analysts on the database have each of the recommendation levels and the consensus (average) recommendation. We show the consensus target price, as well as the high and low, and whether the price is over or undervalued against the mean target price. We then show the price versus the intrinsic value calculation (so a stock trading at twice its IV is 100% overvalued).
d) Dividend information – Date of the last dividend and the expected date of next dividend based on last year’s ex-dividend dates, the level of franking and date of next results etc.
e) Share Price Performance – The performance numbers tell you the high and low over the last year and the date it was reached, the percentage change from the top of the range and bottom of the range, and the performance of the share price over the last month, 6 month, 1 and 5 years. These performance figures don’t include dividends. This section also includes a measure of the share price volatility and the company’s beta, which is a measure of the share price volatility relative to the market. The beta is the 5 year measure and is a monthly regression of the percentage change of the stock relative to the percentage price change of the local index.
4. Section 4 contains company information, including the company’s website address, the date it was listed, whether it has a financial or calendar year-end and brief business description. Daily and weekly reads for technical indicators ATR and RSI are also provided.
STOCK BOX GLOSSARY
- FY1 –The first upcoming fiscal year. FY0 means the last reported fiscal year. FY-1, FY-2 and FY0 are actual numbers while FY1, FY2, FY3 etc. are future forecasted numbers. For example, the photos in this glossary are taken from the CBA STOCK BOX which has its year-end in June 2018. If today is the 22nd of March 2018, FY0 is the fiscal year ended June 2017 and numbers in that column are factual from that annual report, and FY1 is for the current fiscal year ended June 2018.
- Yr End – The date the company reports its year-end.
- ROE – Return on equity. Net income as a percentage of shareholder equity invested or simply, how many cents the company makes in earnings for every dollar you invest in them. Good companies have high ROEs, consistency and growth.
- EPS – Earnings per share is the earnings/number of ordinary shares. It is an indicator of the company’s profitability specific to each investor. Accountants can do a lot to manipulate this number so be careful. Again consistency and growth are key.
- PE – Price to earnings ratio or price multiple is the price per share/earnings per share. This looks at how expensive the stock is or the dollar amount you must invest to receive one dollar in earnings. A high PEx over 30 is considered an expensive stock while a low value is considered a cheap stock.
- Yield – Dividend yield. Dividend amount per share as a percentage of the company’s share price. An investor looking for an income stock would be looking for a high and stable yield above 5%. However, the yield is subject to if the stock is franked and may not be the whole picture.
- Gross Yield – Dividend yield before deductions of tax and expenses (franking).
- Div Cover – Ratio of the company’s net profits to total dividend paid to shareholders. 1x means all the net profits were paid out as a dividend or 100 means 1% of net profits were paid out as dividends.
- Payout Ratio – Dividends per share/earnings per share. If 100%, then all earnings were paid as dividends.
- Peg Ratio – Price-earnings ratio (PEx)/EPS growth. Provides a more complete picture than PEx. A PEG ratio below 1 is desirable as the lower the PEG ratio, the more growth the company is forecast to have. For more on PEG ratios click here.
- Price To Book – Book value per share. The value of total reported equity/total shares at the last fiscal year end.
- Franking – 100% means the dividend is fully franked and the company has paid its full tax amount on the dividend. If the shareholder’s tax rate is lower, they will receive a tax credit.
- ROA – Return on Asset. Equals net income/net assets. Measures how efficient a company’s management is at using its assets to generate earnings.
- NTA – Net tangible assets. Value of the company’s physical assets (so excluding goodwill) minus any liabilities. This is displayed on a per share basis.
- Gearing – Proportion of company’s debt/equity. 70% means the debt levels are 70% of its equity levels. High gearing ratios leave a company could be more susceptible to unforeseen events.
- Mean Target Price – Average broker target price.
- Target Price High/Low – Lowest and highest broker target prices currently.
- Beta – How volatile the share price moves in relation to market movement. Beta of 1 means the stock price moves with the market, less than 1 means the stock price is less volatile than the market and more than 1 means it is more volatile than the market.
- 52 Week High/Low – Highest and lowest price the share has reached in the last year to date.
- Volatility – A measure of fluctuation in the share price. Higher volatility is riskier.
- ATR – Average True Range is a measure of volatility. Higher ATRs mean higher price volatility, lower ATRs mean lower price volatility.
- RSI – Relative Strength Index is a momentum indicator. Evaluates the strength of recent price performance to determine if it is oversold or overbought. If it crosses back up through 30, this indicates moving from oversold to neutral state showing positive momentum and is a buy signal. Similarly, if it moves from above to below 70, this indicates moving out of an overbought state with negative momentum and is a sell signal. Weekly RSI uses weekly price movements and is more reliably used to determine momentum.
STARMINE RANKINGS – From 1-100. 100 is the best in green and 1 the worst in red. Designated by StarMine and subsidiary of Thompson Reuters. We use them as a general ‘good or bad’ indication and try to just gauge the overall colour of the entire section. Here are their definitions.
- Earnings quality – The StarMine earnings quality (EQ) model favours stocks whose earnings are backed by cash flows and other sustainable sources and penalises those driven by accruals and other less sustainable sources.
- Value-momentum – The StarMine value–momentum (VAL-MO) model is a combination of 4 other StarMine models. Two are valuation models (StarMine intrinsic valuation and StarMine relative valuation), and two are momentum models (StarMine analyst revisions model and StarMine price momentum)
- Price-momentum – The StarMine price momentum (PRICE MO) model leverages the tendency of long-term trends in returns to continue and the tendency of short-term trends to revert. The model also incorporates industry-level price momentum and the degree of consistency, or volatility, in prior returns.
- Credit ranking – The StarMine combined credit risk model (CCR) incorporates 3 of its other models (StarMine structural uses structural leverage, asset volatility and asset drift, smartratios uses profitability, leverage, coverage, liquidity and growth and stability, and text mining uses transcripts, news and filings) into a final estimate of corporate credit risk.
- Trend of forecasts – The StarMine analyst revisions (ARM) model aims to predict future changes in analyst sentiment. It overweights more accurate analysts and the most recent revisions and provides a more holistic portrait of analyst sentiment and a better predictor of future changes.
- Intrinsic valuation – The StarMine intrinsic valuation (IV) model ranks companies based on their intrinsic value. High (low) scores represent stocks that are undervalued (overvalued). The model accounts for the systematic biases in sell-side estimates. Namely, the faster the expected growth rate, the more optimism bias. And, farther out estimates are more optimistically biased than nearer ones.
- Relative valuation – The StarMine relative valuation (RV) model blends valuation ratios and includes both reported actuals and the proprietary smartestimates for fy1 and fy2. Forward estimates are over-weighted relative to actuals where analyst estimates have historically been most accurate and under-weighted for measures where estimate error is typically highest.
- Insto interest – A model that ranks stocks based on the expected future increase, or decrease, in institutional ownership. Institutions show high conviction in buying companies with particular characteristics, whether that be pe or yield or balance sheet strength. The model analyses the purchasing profile of each fund and ranks stocks according to their collective institutional appeal.
- Predicted surprise – The predicted surprise % is the percentage difference between the smartestimate and the i/b/e/s consensus estimate. When smartestimates diverge significantly from consensus, it serves as a leading indicator of the direction of future revisions and/or surprises. This indicator gets earnings surprises directionally correct 70% of the time. Smartestimates are created by excluding stale estimates and data errors, then weighting the remaining estimates based on each analyst’s track record.
- Trend – Short – Reflects only the short term aspect of the price momentum model.
- Trend – Medium – Reflects medium-term aspect of the price momentum model.
- Trend – Long – Reflects long-term aspect of the price momentum model.